Designing Services and Products

Alex Hill and Terry Hill

Learning objectives
Appreciate the ROLE of new service and product
development as the lifeblood of an organisation
Identify the alternative STRATEGIES in service and
product innovation
Differentiate between LONG-TERM and TACTICAL
programmes
List the STEPS involved in designing and developing
services and products
Select from and use a range of TECHNIQUES related
to service and product design

Lecture outline
INTRODUCTION
DESIGNING and DEVELOPING services and products
TECHNIQUES for improving design
Critical REFLECTIONS
SUMMARY

Good design involves

identifying what is
critical and taking
everything else away

Alex Hill and Terry Hill

90

Designing and developing services and products

Is there DEMAND for the

proposed services and products?

Can they be
DESIGNED and DELIVERED?

Designing and developing services and products

The research and development process
ALTERNATIVE STRATEGIES
FIRST-TO-MARKET cutting edge
FAST-FOLLOWER quick response
ME-TOO imitate
LATE-ENTRANT delayed response

Designing and developing services and products

The research and development process
LONG-TERM
PROGRAMMES
RESEARCH
- Fundamental
- Applied

TACTICAL
PROGRAMMES
DAY-TO-DAY
- Design
- Develop
- Launch

> KEY IDEA

Research and development combines
LONG-TERM and TACTICAL programmes

significant amount of development work is required before a service can be provided or a

product produced and made available to customers. These steps are described as the design
and development process for the service/product and are outlined in Figure 3.1. Before
discussing these in some detail, it is important to make two observations about the figure:
The process is not sequential although the process outline shows the steps as
following on from each other, parts of several stages will, in fact, be completed in
parallel to one another. This allows for a reduction in development lead-times and so
enables the final designs to be introduced earlier.
Reiteration the steps involve much reiteration throughout as questions are posed at
each stage and these often take the proposal back one or more steps in order to clarify
and resolve the fresh issues raised.

Designing and developing services and products

The design and development process

Figure 3.1 The design and development process for services and products

Generating ideas

Screening ideas

Feasibility study

Preliminary design
and development

Testing prototypes

Market sensing and

testing target markets

FINAL DESIGN

Essential Operations Management Designing Services and Products

73

> KEY IDEA

During the design and development process,
organisations need to use both EXTERNAL
and INTERNAL sources to generate ideas

Designing and developing services and products

The design and development process
INTERNAL SOURCES
EMPLOYEES
SERVICE or PRODUCT
research and development
MARKET research
SALES force
Reverse ENGINEERING

Designing and developing services and products

The design and development process
EXTERNAL SOURCES
CUSTOMERS
SUPPLIERS
LEGISLATIVE requirements
ENVIRONMENTAL concerns
TECHNOLOGICAL advances

Designing and developing services and products

Reviewing the service and product mix

Sales (s)

Figure 3.2 The generalized service/product life cycle

Introduction

Growth

Maturity

Saturation

Decline

Time

Maturity At the maturity stage, there is increased overall demand as a service/product

becomes well known and established within its market segment. However, the rate of
sales increase for a company begins to slow due to competitors entering the market.
It is also here that companies may use increased levels of customization as a way to
help stimulate demand.
Saturation In the saturation stage, most of those who want the service/product
have typically now bought it. Market demand is, therefore, restricted to the need for
replacements plus a small quantity of new sales. Service/product promotion is often
used more extensively here, not to publicise the item but to differentiate it from its
competitors.

> KEY IDEA

Decline In the decline phase of a products life cycle, sales continue to fall off, invariservices/products
areeither
in as
their
ablyAssessing
at a rapid rate. Thewhere
introduction
of competing services/products,
improvements
or substitutes,
declineFORECASTING
to the point where the product/service
LIFE
CYCLEaccelerates
helps the
when
sales
becomes obsolete.
revenue
Reporting current and forecast sales for services/products in terms of their life cycle

stage provides insights into the spread of sales by phase, future sales patterns and the
levels of new services/products that need to be targetted in the future. Also, different
strategies are more relevant to one cycle stage than another. For example, an applications-oriented strategy is appropriate in the mature stage by increasing the level of
customization through offering modifications to existing services/products in order to
serve particular market segments, whereas an emphasis on reducing costs and keeping
designs fixed is most appropriate in the saturation phase of a typical cycle.

Service/product portfolio analysis

Portfolio analysis provides another way of helping companies to look forward and decide

> KEY IDEA

Service/product PORTFOLIO ANALYSIS helps
pinpoint those services or products with the
greatest potential SALES REVENUE and
CASH generation

Designing and developing services and products

Developing a specification
FACTORS TO CONSIDER
The NATURE of services and products
Developing SPECIFICATION to reflect
the service/product mix
The EXPLICIT BENEFITS of the offering
The IMPLICIT BENEFITS of the offering
The supporting structural FACILITIES

> KEY IDEA

The service/product SPECIFICATION offered is
made up of explicit and implicit BENEFITS plus
supporting structural FACILITIES

Designing and developing services and products

Developing a specification

Restaurant

Designing and developing services and products

Developing a specification
Service/product
specification
EXPLICIT benefits

IMPLICIT benefits
Supporting structural
FACILITIES
ISSUES

Restaurant

Critical reflections
Innovation starts with understanding the CUSTOMER
Encouraging CREATIVITY is only part of the solution
Need to clearly link INNOVATION with corporate
SUCCESS
Innovation concerns NOT ONLY R&D, but all aspects
of a business
Need to CONTINUALLY look to improve and develop
services and products
Innovation involves EVERYONE and covers
EVERYTHING

Summary
New service and product INTRODUCTION
- Lifeblood of a business

INNOVATION concerns
- Breakthrough and incremental developments

Most companies will sell TOMORROW what

they sold TODAY
- Need to rethink what they do today

IDEAS should come from

- Internal and external sources

Good design involves

identifying what is
critical and taking
everything else away

Alex Hill and Terry Hill

90

Revision questions
1 The third step in designing and developing services
and products is:
a) Generating ideas
b) Testing prototypes
c) Feasibility study

Revision questions
2 A purpose of testing prototypes is to:
a) Eliminate those ideas that do not appear to have
high potential
b) Understand whether customers will buy the
service or product
c) Illustrate the aesthetic dimension and check the
functionality of an idea

Revision questions
3 If the cash generated is greater than the cash used
by a service or product it is considered to be a:
a) Cash cow
b) Star
c) Dilemma

Revision questions
4 Which of the following is NOT an operations
technique or approach related to design:
a) Quality functional deployment and the house of
quality
b) Statistical process control
c) Taguchi method

Revision questions
5 An example of an advantage of variety reduction is:
a) Reduced inventory
b) Reduced operations runs
c) Increased down-time through more changeovers

Alex Hill and Terry Hill

Learning objectives
Recognise the TECHNICAL and BUSINESS
requirements to be met when delivering services
Understand the CHARACTERISTICS of service
operations
Identify the CATEGORIES of service and TYPES of
service delivery system
Explain how to DESIGN service delivery systems
Understand how IT impacts service delivery

Lecture outline
INTRODUCTION
Factors affecting SERVICE DELIVERY design
DESIGNING the service delivery system
Critical REFLECTIONS
SUMMARY

Good design involves

identifying what is
critical and taking
everything else away
Text

Alex Hill and Terry Hill

Alex Hill and Terry Hill
90

Factors affecting service delivery system design

SERVICE
COMPLEXITY

THE
MARKET

NUMBER OF STEPS

TECHNICAL requirements

- Single
- Multiple

- The service itself

BUSINESS requirements
- Volumes
- Order-winners & qualifiers

> KEY IDEA

As services differ, so will the DESIGNS of their
delivery systems

Factors affecting service delivery system design

Characteristics of service operations

MIX of services and products

INTANGIBLE nature
SIMULTANEOUS provision and consumption
TIME-DEPENDENT capacity
CUSTOMERS can help deliver the service
Need to MANAGE CUSTOMERS
No PATENTS

> KEY IDEA

Services are PROVIDED and CONSUMED at
the same time. They CANNOT be stored

Factors affecting service delivery system design

Understanding how services differ
KEY DIFFERENCES
Level of TECHNOLOGY used
NATURE of service being delivered
- Complexity of service
- What is being processed

TYPE of service being delivered

- Professional, Service shop or Mass service
Understanding how services differ
requirements
BUSINESS
Understanding how services differ is an important prerequisite when designing delivery

especially in organizations that offer a range of services that typically require differ- systems,
Volumes
ent delivery systems. Here, we will highlight several key differences between services.
- The
Order-winners
and qualifiers
role of technology in service provision

A company needs to select the delivery systems that it will use to provide the services it
sells. In part, this concerns the technical dimensions of the items involved, for example:
A restaurant will need to prepare food in line with the menus on offer and customers
requirements. It will, therefore, need the equipment and skilled staff to undertake the
food preparation involved.
A computer services bureau will need the hardware and skilled staff to enable it to
process customers information requirements.
While the need for appropriate equipment and levels of skilled staff is obvious, a suitable
mix and suitable levels further depend on the volumes of sales involved. As we saw in the
earlier example of a village baker and a large company bakery, the lower the sales levels,
the less justification there is for investing in equipment and processes to complete the
task. Figure 4.1 illustrates this point while also giving examples of the mix of equipment
and staff in a range of service businesses.

Factors affecting service delivery system design

Understanding how services differ

Figure 4.1 Range of operations requirements within the service delivery system
Predominant base Level of automation and people skills Examples
Cash dispensing
Automated

Ticket machines
Vending machines
Mechanized car washing
Photocopying

Technology

Dry cleaning
Monitored by unskilled/semi-skilled people

Gardening
Tree surgery
Taxi firm
Air traffic control

Operated by skilled people

Computer time-sharing
Data-processing

Unskilled

Cleaning services
Security guards
Catering

People

Skilled

Vehicle maintenance
Appliance repairs
Lawyers

Professional

Management consultants
Accountants

The nature of the services to be delivered

The services to be processed by the operations system are different not only in themselves
(for example, fast-food and high-quality restaurants provide a different service and product

mix, as illustrated in Figure 1.9), but also in terms of the nature of what is involved. The key
dimensions that make up these differences are listed below and illustrated in Figure 4.2.

Factors affecting service delivery system design

Understanding
The complexity of thehow
serviceservices
to be provided
(that is, the number of steps to complete it)
differ
What is processed in the delivery system customers, customer surrogates, products,
information or some combination of these.
Figure 4.2 The nature of service-processing
Nature of the service

Examples

Customers

Hairdressing, passenger airlines and health care

Customer surrogates

Car maintenance and repair, dry cleaning and furniture restoration

Products

mix, as illustrated in Figure 1.9), but also in terms of the nature of what is involved. The key
Retail outlets and vehicle purchases
dimensions that make up these differences are listed below and illustrated in Figure 4.2.

Information

Mortgage
applications,
insurance
claims
and to
taxcomplete
advice it)
The complexity of the
service to
be provided (that
is, the number
of steps
What is processed in the delivery system customers, customer surrogates, products,
information or some combination of these.

Categorizing services

Figure 4.2 that

The nature
The key dimensions
helpof service-processing
to classify services are provided in Figure 4.3. This shows
Nature
of
the
service
why the system design to deliverExamples
a professional service needs to be different from that
Customers
Hairdressing,
passenger
airlines and health
care
used in a retail bank or supermarket. Such
differences,
therefore,
need to be taken into
Customer surrogates
Car maintenance and repair, dry cleaning and furniture restoration
account when designing the service delivery system. For example, volumes, levels of
Retail outlets and vehicle purchases
service varietyProducts
and the degree of customization
will differ significantly and will need to be
Information
Mortgage applications, insurance claims and tax advice
catered for within the delivery system design.

Categorizing services

The key dimensions that help to classify services are provided in Figure 4.3. This shows

Figure 4.3 Service

why thecategories
system design to deliver a professional service needs to be different from that
used in a retail bank or supermarket. Such differences, therefore, need to be taken into

High

when designing the

service delivery delivery
system. For example,system
volumes, levels ofdesign
Factorsaccount
affecting
service
service variety and the degree of customization will differ significantly and will need to be
catered for within the delivery system design.
Understanding
howONAL
services differ
PROFESSI
Figure 4.3 SERVICES
Service categories
High

Management consultants
Interior designer
s
PROFESSIONA
L
SERVICES

Service variety

Law firms

Management consultants

SERVICE
SHOPS

Architects

SHOPS

Service variety

Architec
tsdesigners
Interior
Law firms
Electronic equipment
SERVICE
repairs
Internal decorating
Electronic equipment repairs
Internal
decorating
Hospitals
Hospitals

Dentists
Dentists

MASS

MASS
SERVICES
SERVICES

cheque
services:
Financial
cheque
services:
Financial
processing
voucher
andand
processing
voucher
Retail banking

Retail banking

Supermarkets

Low

Low

Supermarkets

Low

High

Volumes

Low

High

Volumes

> KEY IDEA

A delivery system processes either customers, customer surrogates, products, infor-

> KEY IDEA

The delivery system processes
CUSTOMERS, CUSTOMER SURROGATES,
PRODUCTS, INFORMATION
or some COMBINATION of these

Designing the service delivery system

Overall design

1. Understand MARKET volumes, order-

winners and qualifiers

2. Identify the service ENCOUNTER and
EXPERIENCE to be delivered
3. Understand how to RETAIN customers

customers are dissatisfied and complain.2

Figure 4.4 Elements within service delivery system design

Designing the service delivery system

although failure impacts on retention rates, a recovery of the service by satisfying
customers complaints can help to counteract the loss of repeat business when
customers are dissatisfied and complain.2

Overall design

Agreed markets
Relevant
Figure
4.4
Elements
within
service
delivery
system design
(including volume
order-winners
implications)
and qualifiers to
retainRelevant
and grow
Agreed markets
(including volume
order-winners
market
share
implications)

and qualifiers to
retain and grow
market share

Service mix
and design
specifications

Service mix
and design
specifications

Service
delivery
Service delivery
system
system
Customers
expectations

Customers
expectations

Customers
perceptions

Customers
perceptions

Failure,
with recovery

Service
encounter

Operations
standards

Service
Service
encounter
experience

Successful
Service
experience

Operations
performance

Failure,
no recovery

Operations
standards

Operations
performance

Customer
retention rate

Failure,
Figure 4.5 Repurchase intentions of Successful
dissatisfied customers
with recovery
Level of service recovery

Percentage of customers who will

buy again by level of complaint
Major

Minor

Complaint not resolved

19

46

Complaint resolved

54

70

Failure,
no recovery

Designing the service

delivery system
Customer
Overall design

Complaint resolved quickly

retention82rate

95

Designing the detail of a service delivery system involves two principal phases:
Phase 1 addressing the issue of the delivery as a whole. This includes decisions
about how and where a system will deliver the service and the point of customer
interface.
Phase 2 the design of the delivery system itself.

Figure 4.5 Repurchase intentions of dissatisfied customers

Essential Operations Management Delivering Services

Level of service recovery

115

Percentage of customers who will

buy again by level of complaint
Major

Minor

Complaint not resolved

19

46

Complaint resolved

54

70

Complaint resolved quickly

82

95

Designing the detail of a service delivery system involves two principal phases:
Phase 1 addressing the issue of the delivery as a whole. This includes decisions
about how and where a system will deliver the service and the point of customer
interface.
Phase 2 the design of the delivery system itself.
Essential Operations Management Delivering Services

115

Designing the service delivery system

Service delivery
CUSTOMER INTERFACE
BACK OFFICE activities
FRONT OFFICE activities

Designing the service delivery system

Service delivery
BACK OFFICE
No CUSTOMER CONTACT
Easier SCHEDULING
Higher processing VOLUMES
Line of
visibility

FRONT OFFICE
FACILITIES represent organisation
Easier to manage QUEUE lengths
Involve CUSTOMERS in delivery
Wider STAFF ROLES

Designing the service delivery system

Service delivery
CUSTOMER INTERFACE
BACK OFFICE activities
FRONT OFFICE activities

DELIVERY SYSTEM
Number of STEPS
- Single vs Multiple

TYPE of delivery system

- Non-repeat vs Repeat
- Low volume vs high volume

Designing the service delivery system

Service delivery
Figure 4.8 Patients visiting a dental surgery an example of a multi-step delivery system
Ground floor layout

First floor layout

c

Waiting
room 1

Dental room 3

Hygienist

Waiting
room 2

Stairs

Stairs

4
1
a
d

Reception

Dental room 2

Dental room 5

Dental room 4

Dental room 1

Store
room

5 e

Entrance/Exit
Patient As movements

Patient Bs movements

1 To reception

a To reception

2 Wait

b Wait

3 Receive dental treatment

c Receive hygienists treatment

4 Sign forms at reception

d Sign forms at reception

5 Depart

e Depart

and book next appointment

and book next appointment

of a service. Thus, health-care specialists restrict their involvement to their area of

specialism, with other tasks being completed in a more cost-effective way in terms of
staff skills, and with each step of the process being provided by specialized and more
effective procedures and approaches to completing the tasks involved. By processing
customers step by step, the capacity at each step in the process is used and reused to
meet the different requirements of different customers, with volumes justifying process
investment and leading to a more overall cost-effective provision.

Designing the service delivery system

The service specification is complex Where services are relatively simple, they lend
themselves to being delivered by a single-step system. Where services are more
complex, companies typically provide them in a multi-step format. One reason is that
matching the task requirement to the appropriate skill set is easier to schedule.

Other factors

Volumes can be enhanced Using a multi-step design to provide a number of services

brings together similar steps from two or more services to be completed in the same
function or area. The higher volumes that result provide scope for cost reduction by
creating the opportunity to invest in the process, develop specialist skill sets and match
each step in the service to the required skill levels and salary grades that go with these.
Now look at Case 4.4 to reflect on the choices that need to be considered.

services
ENHANCING
IT-based service delivery system designs
of designing
IT indelivery
service
delivery
UseWhen
systems, many
organizations have used developments in IT to
rethink approaches. Such developments have not only reduced costs and lead-times
within systems and procedures,
but also enabled organizations
to redesign
many of
participation
in service
delivery
CUSTOMER
these delivery systems, as the following examples illustrate.
126

complete the selection, application and payment parts of the procedure, with the business providing fast delivery once the transaction is fed into the service system.
Financial services provide a growing range of products through self-service delivery
systems from ATMs, general banking, insurance, mortgages and personal loans.

Designing the service delivery system

The reasons for the growth in these sectors vary; Figure 4.9 summarises some factors
that
relate factors
to their success, while Case 4.6 provides an illustration.
Other
Figure 4.9 Success factors of self-service approaches
Success
factors

Selected service sectors

Super- Fast-food Telephone Petrol
Online Financial
markets outlets
services stations shopping services

Faster service

Lower price

Improved product
quality

Increased product
variety

More convenient

More customer
control within
the delivery system

Essential Operations Management Delivering Services

Delivering services
Different approaches to serving customers

Hospital

Insurance company

131

Delivering services
Different approaches to serving customers
Question

Answer

SALLYS
approach

BOBS
approach

POINTS
highlighted

Critical reflections
Service DELIVERY SYSTEMS must be:
- ALIGNED to its market ORDER-WINNERS and
QUALIFIERS
- REFLECT its internal BUSINESS requirements
- INCORPORATE IT and other DEVELOPMENT
opportunities

Customers become MORE PROFITABLE the longer

you RETAIN them

What underpins the drive to develop delivery systems that meet the needs of customers
is the impact they have on market share, retention and growth. Online retailers estimate
that there is no overall profit on transactions until a customer has returned three or even
four times. Similarly, as Figure 4.11 shows, keeping customers grows profit. Aligning
delivery systems to markets is, therefore, a key task and requires a sound corporate
understanding of what is needed and how systems are to be developed.

Critical reflections

Figure 4.11 Trends in annual profit per customer

Annual profit/customer

Sector

Car servicing

100

140

280

350

350

Credit cards

100

250

283

290

309

Distribution

100

220

270

320

373

Note: Figures indexed on year 1.

Summary
A key decision for any company is how to deliver its services in order to meet both the
needs of its customers and the objectives of the business.
Factors that must be taken into account are divided into the technical requirement
(what the service specification comprises) and the business requirement (the orderwinners and qualifiers for the chosen market). Together, these requirements form the
service offering, which is experienced by the customer.
Decisions about service delivery system design are influenced by the distinctive characteristics of the service and the features of the overall and detailed service delivery
system design.

Summary

The impact of IT and other developments on design alternatives has been described
in the chapter, and examples have been provided to illustrate the continued impact on
service delivery.
Finally,
the other issues
to bedistinctive
considered in CHARACTERISTICS
delivering services were explained, with
have
Services
examples.

- Intangible and perishable

Studyactivities
Service delivery systems must SUPPORT
- questions
Technical and business requirements
Discussion
1 Choose
a service companyrequirements
that uses at least two of the delivery systems detailed in
TECHNICAL
this chapter. Explain why a company would have made such choices.

- The service specification

2 Based on Figure 4.2, identify an organization that illustrates one of the examples given
for each
of the four types
(customers, customer surrogates, products and informarequirements
BUSINESS
tion). Then provide an overview (two or three lines) to show what is processed (for
- Volumes and market order-winners and qualifiers
example, customer and information).
3 Why is queuing often an integral part of a service system design?
4 For a service company of your choice explain:
The service delivery system design
How the company could reduce queues within the system.
5 Review the data in Figures 4.5 and 4.11. Why do the results seem to make sense?

Good design involves

identifying what is
critical and taking
everything else away
Text

Alex Hill and Terry Hill

Alex Hill and Terry Hill
90

Revision questions
1 The service delivery system design will reflect:
a) The complexity of the service being delivered
b) The business and technical requirements that
have to be met
c) Both a) and b)

Revision questions
2 Which of the following are distinctive characteristics of
services :
a) Produced and consumed separately, so its
possible to store them
b) Customers do not form part of the delivery
system
c) Intangible in nature, so customers cant see, feel,
inspect or test them before purchasing them

Revision questions
3 An example of an automated service is:
a) Dry-cleaning
b) Cash dispensing
c) Word processing

Revision questions
4 The key dimensions that help classify services into
professional services, service shops and mass
services categories are:
a) Volume
b) Service variety
c) Both a) and b)

Revision questions
5 The front office tasks are conducted:
a) In the presence of and involving the customer
b) Away from and not involving the customer
c) Both a) and b)

Revision questions
6 An advantage of completing work in the back office
is:
a) Processing volumes are lower
b) They are easier to schedule
c) The customer can process some of the activities

Revision questions
7 Which of the following statements is true:
a) Retention rates are higher for customers having
no problems during service delivery
b) Retention rates are higher for customers having
problems that are solved during service delivery
c) Retention rates are not affected by whether a
customer experiences a problem during service
delivery

CASE FOR TUTORIAL

BRITISH AIRWAYS CLUB WORLD